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Cost Effectiveness of Future Fuel Economy Improvements

U.S. petroleum use today is 2 million barrels per day lower than it would have been if automobile fuel economy had not improved since 1975. This paper explores the potential for and cost of further increases in domestic passenger car fuel economy using market-ready technologies and sales mix shifts. Using technology already included in manufacturers' production plans and based on consumers' willingness to pay for increased fuel economy, domestic auto mpg could be increased from the 1987 level of 27 mpg to 31.6 mpg in 1995 without reducing vehicle size or performance from 1987 levels. By2000, 34.3 mpg can be justifed on the same basis. A higher level, 36.4 mpg, is cost-effective, based on fuel cost savings over the entire expected vehicle life. The maximum level achievable with the technology included in this analysis is 39.4 mpg, but this level would not be cost-effective. Sales mix shifts stimulated by price subsidies for efficient cars and surcharges on inefficient models can cause about I or 2 mpg of higher fuel economy before becoming too costly.

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Energy Specializations: Energy Efficiency

JEL Codes:
Q55 - Environmental Economics: Technological Innovation

Keywords: Passenger cars, CAFÉ, Oil dependence, Cost effectiveness

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No1-7

Published in Volume 11, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.